Euro Zone Bond Yields Rise After ECB Rate Cut

Euro zone government bond yields increased following the ECB's 25 basis point interest rate cut. Despite this, markets have adjusted their expectations on further easing. Analysts predict the ECB will deliver 25 bps cuts each quarter with inflation in services still over 4%.

Government bonds in the Euro zone saw yields rise on Thursday after the European Central Bank slashed interest rates by 25 basis points and adjusted its economic forecasts. This led to a recalibration of market expectations on the ECB's monetary easing cycle.

The ECB's decision to cut rates comes as inflation in services, which constitutes the majority of the consumer basket, continues to hover above 4%, said Charles Seville, senior director at Fitch Ratings. Market analysts now predict a single 25 basis point cut coupled with a 30% probability of an additional cut by the end of the year.

The December 2024 Euro short-term rate forward edged higher to 3.085% following the ECB's statement. The ECB also revised its economic forecasts and inflation outlook while setting the deposit facility rate at 3.50%. Experts foresee the deposit rate declining to 2.50% within a year.

(With inputs from agencies.)